[Federal Register Volume 76, Number 56 (Wednesday, March 23, 2011)]
[Rules and Regulations]
[Pages 16235-16236]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2011-6755]
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NATIONAL CREDIT UNION ADMINISTRATION
12 CFR Part 707
RIN 3133-AD58
Corporate Credit Unions, Technical Corrections
AGENCY: National Credit Union Administration (NCUA).
ACTION: Final rule.
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SUMMARY: In 2010, NCUA issued technical corrections to its corporate
credit union rule, published in the Federal Register of October 20,
2010. NCUA is issuing this final rule adopting the technical
corrections without alteration.
DATES: This rule is effective March 23, 2011.
FOR FURTHER INFORMATION CONTACT: Elizabeth Wirick, Staff Attorney,
Office of General Counsel, National Credit Union Administration, 1775
Duke Street, Alexandria, Virginia 22314-3428, or telephone: (703) 518-
6540.
SUPPLEMENTARY INFORMATION:
I. Background
In October 2010, NCUA published a comprehensive overhaul to its
corporate credit union rule, 12 CFR part 704. 75 FR 64786 (Oct. 20,
2010). After publication, NCUA discovered that three technical
corrections were necessary, and NCUA issued an interim final rule
containing the corrections in December. 75 FR 47173 (Dec. 20, 2010).
The technical corrections are as follows:
Section 704.2 Definition of ``collateralized debt obligation''
The final revisions to part 704 prohibited corporate credit unions
(corporates) from purchasing certain overly complex or leveraged
investments, including collateralized debt obligations (CDOs). 75 FR
64786, 64793 (October 20, 2010). These prohibitions were intended to
protect the corporates from the potential for excessive investment
losses. 74 FR 65210, 65237 (December 9, 2009)
[[Page 16236]]
(preamble to proposed part 704 revisions). The definition of CDO,
however, was overly broad, in that it inadvertently included particular
investments that did not--when subject to the other credit risk and
asset liability management limitations of part 704--present the risk of
excessive losses. This final rule amends the CDO definition to ensure
the following are not prohibited: Commercial mortgage backed
securities; securities collateralized by Agency mortgage-backed
securities (Agency MBS); and securities that are fully guaranteed as to
principal and interest by the United States Government and its agencies
and government sponsored enterprises.
Paragraph 704.6(b) Exemptions to Sec. 704.6
Section 704.6 generally requires corporate investments meet certain
single obligor concentration limits, sector concentration limits, and
credit rating requirements. Paragraph 704.6(b) exempts certain
investments, including investments generally issued by or guaranteed by
the U.S. Government or its agencies or sponsored enterprises, from the
requirements of Sec. 704.6. As stated in the preamble to the recent
corporate rule revisions, however, the Board did not intend for this
exemption to apply to agency MBS in the context of sector limits. 75 FR
64786, 64806 (Oct. 20, 2010) (discussing paragraph 704.6(d)(1)(i)). As
drafted, however, not only the sector limits apply to agency MBS, but
the other requirements, including single obligor limits and credit
rating requirements, inadvertently apply to agency MBS. This correction
clarifies the list of exemptions in Sec. 704.6(b) to make clear that
Agency MBS are subject to the sector concentration limits in 704.6(d)
but not the other requirements of Sec. 704.6.
Appendix A, Model Form H
The rule as published included an incorrect date instruction on
Model Form H in Appendix A. Id. at 64851. Model Form H included
introductory text indicating that the form was for use before October
20, 2011. In fact, because Model Form H deals with perpetual
contributed capital, the form should be used only on and after October
20, 2011. The correction replaces the phrase ``before'' with the phrase
``on or after.''
II. Interim Final Rule
NCUA issued an interim final rule with request for comment on
November 24, 2010. As discussed in the preamble to the interim final
rule, the Board issued the rule as an interim final rule because the
changes were technical in nature and it was in the public interest to
have these corrections become effective on the same date as the other
revisions to the corporate rule. 75 FR 47173, 47174 (Oct. 20, 2010).
III. Summary of Comments
NCUA received two comments on the interim final rule, both from
credit union trade associations. Neither commenter suggested changes to
the rule text, but one of the commenters sought additional
clarification regarding NCUA's treatment of commercial mortgage backed
securities (CMBS) under the revised definition of CDO. The commenter
requested that NCUA state its reasoning for the exclusion of CMBS from
the definition of CDO and also state that if the structure of CMBS
changes in a way that increases the corporates' risk of loss on these
investments, NCUA will remove this exclusion.
This commenter appears to have misunderstood the effect of the
change in the definition. The change operates to make CMBS a
permissible investment for corporate credit unions--that is, securities
collateralized by commercial mortgage loans. CDOs collateralized by
mortgage securities, commercial or residential, remain prohibited under
the definition of CDO. Investments in plain-vanilla CMBS, which are
collateralized by loans, do not pose the same risk as investments in
securities collateralized by other securities where an investor cannot
as easily determine the quality of the underlying loans. Also, as the
commenter correctly noted, corporate credit union investments in CMBS
are subject to the sector concentration limits imposed under Sec.
704.6(d). Finally, NCUA will continually monitor corporates'
investments and make adjustments to the corporates' investment
authorities where appropriate.
IV. Regulatory Procedures
Section D of the Supplementary Information to the November 2010
interim final rule sets forth the Board's analyses under the Regulatory
Flexibility Act (5 U.S.C. 601 et seq.), the Paperwork Reduction Act of
1995 (44 U.S.C. 3506; 5 CFR part 1320 Appendix A.1), the Small Business
Regulatory Enforcement Fairness Act (Pub. L. 104-121), Executive Order
13132, and the Treasury and General Government Appropriations Act (Pub.
L. 105-277, 112 Stat. 2681 1998). See 75 FR 71527--71528. Because the
final amendments are clarifications and do not alter the substance of
the analyses and determinations accompanying that final rule, the Board
continues to rely on those analyses and determinations for purposes of
this rulemaking.
List of Subjects in 12 CFR Part 704
Credit unions, Corporate Credit Union, Reporting and recordkeeping
requirements.
By the National Credit Union Administration Board on March 17,
2011.
Mary F. Rupp,
Secretary of the Board.
Accordingly, the interim final rule amending 12 CFR Part 704, which
was published at 75 FR 71526 on November 24, 2010, is adopted as a
final rule without change.
[FR Doc. 2011-6755 Filed 3-22-11; 8:45 am]
BILLING CODE 7535-01-P